Property service charges are rising steeply

9th March 2016

Property service charges are rising rapidly with a third of management companies increasing these fees in the last two years.

According to figures from landlord insurance provider, Direct Line for Business, the average service charge or fees leaseholders pay to cover their share of the overall building maintenance, now stands at £1,863. This cost alone represents more than two months of the average monthly rental income received by landlords, which stands at £906.

The research found that service charges for new build properties, coming on the market in 2016 are significantly greater than for older dwellings at £2,777 – more than 95% higher than the average for an older property. Service charge levels also vary markedly between developments. One new build development coming onto the market in Croydon in 2016 will see home owners paying £1.55 per square foot in service charges, while a development in Lambeth coming onto the market in 2017 is charging four and a half times more at £7 per square foot.

Recent moves by developers have seen more private housing stock owned by freeholders subject to service charges. Owners of freehold properties situated on private roads or private estates are being charged for upkeep of roads and gardens. In one example owners of every four-bedroom property situated on a development in Guildford are charged £900 a year for upkeep of the road and communal gardens.

“Service charges are often a hidden cost, which should be factored in when considering the affordability of a property, as in some cases these fees are uncapped and can escalate rapidly” says Nick Breton, head of Direct Line for Business.

“Landlords need to take into account all associated costs when purchasing a property, such as service charges, ground rent and taxes that may impact their rental yield.”